If you run a small business, it's amazing how much paper you can accumulate and how quickly your digital storage space fills up. Looking at your overflowing files, you may wonder, "Do I really need to keep all this stuff?"
The answer is yes—and no. It depends on the kinds of business documents you have, and how old they are. Use this quick and easy guide to help you decide what to save and what to toss.
The Internal Revenue Service (IRS) recommends keeping tax returns and supporting documents until after two different dates have passed: the deadline for you to amend your return to get a credit or refund, and until the time runs out for the IRS to assess additional taxes.
To be on the safe side, keep your business tax returns—plus the receipts and other documents that support your numbers—for seven years. This will cover just about any scenario that could come up. After that, you can destroy the supporting documents but keep your business tax returns permanently. You may need them to prepare future tax returns or for other purposes.
Employment Tax Records
Follow IRS recommendations and hang on to employment tax records for four years after the date the tax is due or the date you paid the tax, whichever comes later. These records include your employer identification number, employee information (such as Social Security numbers and dates of employment), amounts of wages and tips, copies of employment tax returns, W-4 forms, and records of fringe benefits.
Records Involving Business Property
These records help you calculate depreciation, amortization, and depletion deductions, as well as the gain or loss when you dispose of business property, such as vehicles, real estate, and equipment. The IRS says to keep business property records until the limitations period expires for the year you dispose of the property. So, to be conservative, keep these documents for seven years after you no longer own the property.
Corporation and LLC Records
Keep your official business records permanently. Depending on how your business is structured, these include your business formation documents; bylaws; articles of organization; lists of shareholders, members, and directors; annual reports; meeting minutes; and trademark, copyright, and patent registrations.
Bank Statements and Other Financial Records
Paper bank and credit card statements generally can be discarded after a year, unless you need them to support your tax returns. If you receive your bank and credit card statements electronically, download any statements you need for tax purposes and keep them for seven years.
As a small business owner, you create financial documents that may include income (or P&L) statements, balance sheets, and cash flow statements. Keep these financial statements indefinitely. You may need them for credit purposes, and they help provide you with a snapshot of how your business has done over time.
Human Resources Records
If you have at least 15 employees, anti-discrimination laws require you to keep employment records for one year from the date the record was made or personnel action was taken. This includes job applications and anything else related to hiring, rehiring, promotions, transfers, employment tests, demotions, layoffs, or selection of personnel for training. The Family and Medical Leave Act requires certain records to be kept for three years. And the Occupational Safety and Health Act requires that records of job-related injuries and illnesses be kept for five years.
That's the law, but many lawyers and accountants urge a cautious approach and advise all businesses to keep employment documents for seven years after an employee has left the company. In cases where a workers compensation claim was made, consider keeping records for 10 years after the claim was resolved. Save records relating to job applicants you did not hire for three years.
Contracts and Other Legal Documents
Keep all contracts and attorney correspondence. Also, keep documents related to any potential legal claims or lawsuits. Finally, keep deeds and titles to cars and other property.
This list is just a guideline. If you can see a reason why you might need a document in the future, then hang onto it. And, when you're disposing of paper files that relate to your business, be sure to shred anything that might contain confidential information—whether it's your business's data or data relating to your clients and vendors—such as bank account or credit card numbers, email addresses, or Social Security numbers.